Is credit tightening threatening radio dealmaking?


The Federal Reserve's policy makers announce their latest move – or lack of movement – on rates this afternoon. Despite the recent roiling of the credit markets, the Wall Street consensus is that Chairman Ben Bernanke and his fellow Fed members won't change rates today. And, unless there are more drastic changes in the economy, they are viewed as likely to stay the course for many, many months to come.

But while tightening credit has pulled Nexstar off the auction block – and possibly LIN Television as well – it appears there is still financing available for most radio and TV deals…at least for now. Those two TV groups are mega-size deals in the broadcasting transaction world – both over a billion bucks and LIN perhaps over two. Deals of that sort require major financing commitments and the lenders who do those big deals (and who typically work with the very large private equity funds) are the ones now moving first to tighten terms or pull back on lending commitments.

"Maybe the money center banks are indeed tightening up, but we haven't seen it yet," broker Larry Patrick of Patrick Communications told RBR/TVBR. He said there are still a lot of lenders wanting to finance radio and television deals and he hasn't seen any dramatic change in terms.

The big issue, said broker Brian Pryor of Media Venture Partners, is that lenders have to syndicate those loans of hundreds of millions or billions of bucks and the institutional investors who generally supply the cash have pulled away, so liquidity has dried up. But he said for the more normal transaction, the bank itself will hold a loan of up to 20 or 30 million. But while the credit tightening hasn't trickled down just yet, "you certainly hear about it from lenders and buyers – they're going to use whatever negotiating leverage they can – but we haven't really seen it run through pricing for certain smaller and medium deals," Pryor said. "That's not to say that banks won't get more cautious," he noted, but in his view it is too early to say whether a general credit tightening is underway.  

SmartMedia observation: Clear Channel must be nervous about getting to the closing table on the biggest deals from its radio divestitures, since only a few of the smaller deals have actually closed thus far. American Security Capital Partners not only switched radio operators, but also bankers for the 452 million bucks purchase of 187 stations by what's now called Frequency License LLC. When last we heard, the new financing was still being put together for what is far and away the biggest buy from the Clear Channel portfolio thinning.

Not today, maybe not next month, but if credit gets tighter and threatens to slow down the economy, Bernanke and the Fed will need to lower rates and keep economic growth from flat-lining. If he stays too focused on inflation, to the exclusion of all other economic factors, he runs the very real risk of repeating the foolish policies of his predecessor who ran the US into an unnecessary recession back at the start of this decade.